June 3, 1998
$7.3 Billion Deal to Combine 2 Telecom Gear Companies
By SETH SCHIESEL and LAURA M. HOLSON
ombining two fast-growing telecommunications equipment companies, Tellabs Inc. has agreed
to acquire Ciena Corp. for $7.3 billion in stock, people close to the deal said Tuesday.
The agreement is expected to be announced Wednesday morning.
The deal illustrates that the forces driving consolidation in telecommunications are affecting makers of
arcane equipment as well as the companies that actually sell services to consumers.
Companies like Tellabs and Ciena have been looking to bulk up to compete against much larger rivals,
including Lucent Technologies, Northern Telecom of Canada and Siemens of Germany.
But at a time when telecommunications carriers are engaged in wars of technological superiority,
telecommunications equipment providers have come to resemble arms dealers. Even smaller
companies like Tellabs and Ciena can generate tremendous growth from specialized technical
knowledge.
Tellabs makes equipment that allows circuits to communicate with one another without being soldered
together. Tellabs, which was founded in the mid-1970s, had grown to $1.2 billion in revenue last year
from $494.2 million in 1994.
Ciena has been one of the most closely watched networking companies in recent years. Ciena helped
develop and popularize a technology that allows long-distance carriers to increase the capacity of their
networks by 16 times or more without putting new cables underground.
Ciena had sales of $373.8 million last year. The company has come under pressure from Lucent, which
turned the muscle of its Bell Labs operation to the task of beating Ciena's systems.
Tellabs, which makes many of its sales to the regional Bell companies, may have wanted to acquire
Ciena with the thought that the Bells may soon win entry into the long-distance market.
Under the terms of the deal, Ciena's shareholders will receive one share of Tellabs stock for each of
their shares of Ciena. Tellabs' shares closed at $65.875, up $0.0625, in Nasdaq trading, while Ciena's
shares closed at $57.5625. While that does not appear to be a huge premium for Ciena's stockowners,
Ciena's stock rose by $6.1875 on takeover speculation Tuesday and is up from a low of $37.25 this
year.
It is a possibility, said a person not involved in the deal, that Cisco Systems Inc. could make a play for
Ciena.
Once the deal is completed, it is expected that Ciena shareholders will own about 35 percent of the
company, which will be located in Lisle, Ill., and keep the Tellabs name, a person close to the talks
said. Michael Birck will remain chief executive of the company and Ciena chief executive Patrick
Nettles will be named president and chief operating officer.
Tellabs will have eight seats on the board. Ciena will have four seats.
Both boards were expected to have approved the merger Tuesday.
Ciena was advised by Morgan Stanley Dean Witter in the discussions. Tellabs was represented by
Goldman Sachs & Co.
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